Recession fears and concerns that the Fed may consider a longer rate-hike cycle sent stocks lower for the week, but critical data coming this week could alter the narrative.
The Standard & Poor’s 500 fell 3.37%. The Dow Jones Industrial Average dropped 2.77% while the Nasdaq Composite index lost 3.99% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, dipped 1.09%.1,2,3
Stocks were under pressure much of the week due to resurgent recession fears and concerns that Fed rate hikes may go higher for longer than current expectations. There was some good news last week on the economic front and out of China, which started to loosen COVID restrictions. But it was a week where good news was considered bad news, as any signs of economic resilience stoked worries of a longer rate-hike cycle.
Higher continuing jobless claims signaled economic softness, triggering a Thursday rally. But stock prices were under pressure Friday following a disappointing Producer Price Index (PPI) number.
Producer Inflation "Disappoints" (?!?)
The Labor Department reported that the PPI rose 0.3% in November and 7.4% from a year ago. Though wholesale prices inflation rose at the slowest 12-month pace since May 2021, they exceeded market expectations. Price pressures were felt most in the services sector, where costs rose 0.4% after a 0.1% increase the month before. Goods inflation eased to a rise of 0.1%, a sharp drop from its October gain of 0.6%.4
Though the PPI number dented the optimism around cooling inflation, November’s PPI report represented an improvement from its 11.7% peak in March.5
Fed policy changes take about 6 months to begin to take effect. Since the Fed told us in January 2022 they were going to start raising rates, that policy shift started to show results in July. Nobody should be paying any attention to inflation or unemployment numbers that include data from before then because the economic world fundamentally changed at that time.
I suppose I should not be amazed that the market continues to focus on figures that include data from many months ago. I just can't emphasize enough that the PPI increase last month was the lowest since May 2021. We should also recognize the possibility that the services sector number the month before was wrong. The 0.1% increase in October coupled with 0.4% this month averages to 0.25%.
On Tuesday-Thursday we will see the numbers that will set the stage for the next month.
Tuesday: monthly inflation. If the CPI is the same as last month or lower, that would be a good sign for stocks.
Wednesday: Federal Open Market Committee (FOMC) Meeting Announcement. If the next increase is only 50 basis points (down from the 75 they have done the last 4 times) that would be another good sign for stocks.
Thursday: If jobless claims are not surprisingly low and retail sales are not surprisingly strong those would also bode well for stocks.
This Week: Key Economic Data
Tuesday: Consumer Price Index (CPI).
Wednesday: Federal Open Market Committee (FOMC) Meeting Announcement.
Thursday: Jobless Claims. Retail Sales. Industrial Production.
Friday: Purchasing Managers’ Index (PMI) Composite.
Source: Econoday, December 9, 2022
This Week: Companies Reporting Earnings
Thursday: Adobe, Inc. (ADBE).
Friday: Darden Restaurants, Inc. (DRI).
Source: Zacks, December 9, 2022
"The winter of the spirit must be journeyed through, and it must not only be conquered but the benefits used. Yet without it maturity cannot arrive."
– Jane Roberts
Traveling for Work? Here’s What You Need to Know About Business-Related Travel Deductions
Business travel deductions are available when employees travel away from their tax home or principal place of work for business reasons. The travel period must be substantially longer than an ordinary day's work, and a need for sleep or rest to meet the demands of the work while away.
Some examples of deductible travel expenses include:
* This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.
Tip adapted from IRS.gov6
Meet The Warrior Poses of Yoga
These warrior poses can help stretch and strengthen your body and are the foundation of most yoga practices. Let’s meet the five warrior poses of yoga!
Tip adapted from Yoga Basics7
What item binds two people yet touches only one?
Last week’s riddle: A train moving as fast as it can go strikes a man’s hand, yet he is uninjured and the train goes off its tracks. Under what circumstances could this happen? Answer: The train that strikes the man is a toy train running around on a model set.
Great Barrier Reef, Australia
Footnotes and Sources
2. The Wall Street Journal, December 9, 2022
3. The Wall Street Journal, December 9, 2022
4. CNBC, December 9, 2022
5. CNBC, December 9, 2022
6. IRS.gov, August 8, 2022
7. Yoga Basics, March 11, 2021
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Weekly Market Insights: Stocks Slide on Recession Concerns
December 12, 2022